The Supreme Court allowed a partial appeal of the Court of Appeal’s decision in finding that a local authority owed a duty of care to a commissioning owner in issuing a CCC for a non-compliant building.

Facts

The appellant Trust built the Southland Stadium between 1999 and 2000. During construction, the roof design was identified to be defective. The Trust engaged an independent structural engineer to review the design, who provided a remedial solution. Conditions of consent for the remedial design required the Trust’s engineer to provide a PS4, confirming that the work had been constructed in accordance with the consented remedial design, and information in support. The remedial work was not constructed per the design or inspected by the Trust’s engineer. The consent conditions were therefore not met. The respondent Council nonetheless negligently issued an interim CCC in November 2000. In January 2001 the Trust’s engineer provided further information to the Council which did not comply with all the conditions of the building consent, but the Council issued a final CCC in April 2003.

In 2006 the Trust’s engineer recommended an inspection of the roof’s truss welds and support fixings by a qualified person, but this was not done.

As a result of the defective remedial work the Southland Stadium’s roof collapsed after snowfall in September 2010. The Trust sued the Council in negligence and negligent misstatement in relation to the remedial work.

High Court

The High Court (Dunningham J) found the Council owed a duty of care to the Trust when issuing the CCC and there was no reason to distinguish the Supreme Court’s decision of Spencer on Byron, which held that a territorial authority’s duties under the Building Act 1991 were owed to both original and subsequent owners ‘regardless of the nature of the premises’. The High Court held that the Council owed a similar duty of care in respect of issuing CCCs to commissioning owners.

The High Court also concluded the Council was negligent in issuing the CCC for remedial works to the stadium roof trusses when it had no information on which it could reasonably have concluded the work complied with the Building Code. Dunningham J also found that the Trust was not contributorily negligent in failing to implement the engineer’s 2006 recommendation to inspect. The Trust recovered the GST exclusive cost of rebuilding the stadium and lost rental (c $15.2m total) less $750,000 for betterment.

The Council appealed the High Court’s decision.

Court of Appeal

The Court of Appeal allowed the appeal. It held that the Trust’s claim against the Council was for negligent misstatement, rather than ordinary negligence, notwithstanding that the pleading was framed in both.

The majority judges (Harrison and Cooper JJ) held it would not be fair, just or reasonable to impose a duty of care on a Council to protect a property owner against loss caused by the negligence of its own agents. The majority also held that there was no assumption of responsibility by the Council for the Trust giving rise to the special relationship necessary for a claim for negligent misstatement. It could not be inferred that the Council knew that the Trust would use the CCC to satisfy itself that the stadium complied with the Building Code without further independent inquiry, nor was there evidence that it in fact did so. The Trust engaged third parties (contractors/consultants) to design and construct the stadium, and assumed control over the design and construction functions. The Trust relied on its contractors and consultants, not on the Council, and was the party best placed to take care to avoid loss.

The minority (Miller J) believed the Council had assumed a limited duty to check appropriately qualified persons had supplied adequate evidence that consent conditions had been met. Miller J considered that the Council had breached this duty by issuing the CCC without the PS4 and other information required under the consent. However, he agreed with the majority that the Trust had not proved that it in fact relied on the CCC for assurance that the work complied with the Building Code.

The Court of Appeal unanimously held the Trust relied on its own contractors/consultants, not the Council, meaning the negligent misstatement action failed for lack of specific reliance. The Court also unanimously considered that the Trust had been contributorily negligent in failing to follow the 2006 engineer’s recommendations and reduced the damages award by 50 per cent.

Supreme Court

The Trust appealed to the Supreme Court. The two principal issues for consideration were:

(a) Whether the case was distinguishable from Spencer on Byron.

(b) Whether the Trust was contributorily negligent.

On the first question, the Supreme Court unanimously held that the High Court was correct and that the Court of Appeal had erred in distinguishing Spencer on Byron. The duty of care on councils under the Building Act 1991 springs from the councils’ regulatory role under that Act. This role was different from commissioning the building work or undertaking the construction. The distinction that the Council sought to draw on the basis that the Trust was a commissioning owner was not one made in the legislative scheme. Nor was there a valid distinction between the issuing of a CCC and councils’ other functions, such as granting of a building consent or inspections. All of these functions were directed at ensuring buildings complied with the Building Code, meaning the duty was not obviated by another party’s negligence or knowledge. As a matter of policy, the actions and knowledge of independent contractors were not attributed to the owner.

The Supreme Court further held that the claim should have been characterised as one of negligence, and not negligent misstatement.

A majority (Elias CJ, O’Regan and Ellen Frances JJ) upheld the Court of Appeal’s finding that the Trust was contributorily negligent in not following the 2006 engineer’s recommendations for inspection and that damages should be reduced by 50 per cent.

Comments

In reversing the Court of Appeal’s decision, the Supreme Court has clarified that local authorities owe a duty of care to all building owners, including commissioning owners who have engaged their own contractors. Such owners will have recourse in negligence where a local authority has not met its duty of care.

Commissioning owners should be aware, however, that their own negligence to ensure compliance with building standards could mean a finding of contributory negligence and a reduction in damages in consequence.

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